Boris Johnson has shown scant regard for the currency markets in his time in office – you may remember his “the pound will go where it goes” comment during the Brexit negotiations – but if the Prime Minister is looking for some comfort this morning he could do worse than look at the robust position of the pound.
GBP/EUR is close to its highest in over five years and GBP/USD hit a ten-week high against the US dollar last week, suggesting that the financial world thinks the UK economy is in relatively good shape.
Could it be all downhill from here? With the pound struggling to surmount a major resistance level, UK politics facing potential upheaval, and warlike sounds coming from the far edge of Europe, this may be the time to lock in almost the highest rate for five years with a forward contract.
Looking at the week ahead, a series of data releases this week have the power to move the pound.
The big event of the week will be inflation on Wednesday morning. Currently running at 5.1% per year against the target of 2%, any further increase – although bad for most Britons, especially those with savings – will raise expectations of an interest rate hike on 3rd February, possibly strengthening sterling. Of course the reverse is also entirely possible: good news for the country’s savers will probably be bad news for the pound. Given the slowdown in December as Omicron hit, this may be the more likely outcome.
Sterling could also be threatened by unemployment data tomorrow. On this at least, good news on jobs can be expected to strengthen the pound, but again the forecasts are not positive.
Finally, there is Consumer Confidence and retail sales for December on Friday.
So this is a week to have your wits about you, if you are gearing up for a major payment overseas in 2022. Be ready to call your trader on 020 8108 5163 and lock in your rate for the year ahead or do so now.
